The cost of heat pump water heaters

Learn what drives installation costs and how incentives can make upgrades more affordable.

The market for heat pump water heaters (HPWHs) in New York State is still developing.  Adoption is currently limited by high upfront costs, the availability of incentives and the high cost of electricity. Still, with the right targeting, New York has major opportunities to expand cost-effective HPWH upgrades across the state.      

Higher up-front costs

HPWH installations are more expensive than a like-for-like replacement: estimates show that a typical HPWH retrofit costs around $3,300, with about two-thirds of that cost going toward the unit. By comparison, a conventional gas water heater costs around $2,000 for equipment and installation. Costs can rise further if electrical panel upgrades are needed, with the average electrical upgrade costing almost $2,000. (Although upgrading a home’s electrical panel is likely an inevitability regardless of HPWH adoption).

Table 2 is an estimate of the main costs associated with an HPWH installation in New York for a typical single-family home:

Table 2

Incentives are crucial but uncertain 

Several incentive programs in New York help offset the cost of installing a heat pump water heater. Through 2025, most homeowners can claim a $1,000 rebate for purchasing an Energy Star-listed HPWH product. For low- and moderate-income households, a large proportion of the total unit cost and the electrical panel upgrade is covered through the EmPower+ program. 

However, incentive uncertainty looms. All federal rebates and tax credits for HPWHs will end after 2025, which will likely impact the level of incentive New York can offer. Many New York utility programs for energy efficiency and electrification are also being redesigned for 2026 to 2029, though regulators have indicated that support for HPWHs will continue. Overall, it seems unlikely that HPWH incentives will become more generous over the next couple of years, and cost will remain a barrier to many homeowners. 

Utility bill savings depend on the existing system

The math is straightforward for homeowners who currently use traditional electric water heaters (around one-quarter of all single-family homes in New York). HPWHs will use up to three times less electricity than a traditional unit and homeowners who make the switch will cut their water heating bill in half, seeing $200 to $300 in utility savings each year.^[1]https://www.nyserda.ny.gov/Residents-and-Homeowners/Heat-and-Cool-Your-Home/Water-Heaters Figure 4 below compares the efficiency of HPWHs to electric resistance and fossil-fuel water heaters.

Figure 4

Homeowners using fuel oil or propane for water heating will also see a decrease in their utility bills because the cost of the electricity to power an HPWH will be less than the cost of the oil or propane they currently use. The amount of cost savings will depend on the price each homeowner pays for fuel and electricity, which varies based on location,^[2]https://www.nyserda.ny.gov/Energy-Prices/Home-Heating-Oil/Average-Home-Heating-Oil-Prices but these significant savings help homeowners recoup the upfront cost of a HPWH. Table 3 below shows the regions in New York with the highest percentage of non-gas water heaters. 

Table 3

Unfortunately, the many New York homes using natural gas for water heating aren’t currently likely to see significant cost savings from switching to a heat pump water heater, despite very significant energy savings. That is largely because natural gas is generally much cheaper per unit of energy than electricity, which can be up to 5 times more expensive.^[3]https://www.bls.gov/regions/northeast/news-release/averageenergyprices_newyork.htm#:~:text=New%20York%20area%20households%20paid,per%20therm%20a%20year%20earlier. Until rate structures change, HPWH retrofits in gas-heated homes will offer environmental and safety benefits, but often not result in lower operating costs.